Market Report: Baosteel stake-building talk bolsters BHP

Late-afternoon rumours of a Chinese advance propelled BHP Billiton to the top of the FTSE 100 leader board yesterday.

The talk centred on Baosteel, the Chinese state-backed iron and steel conglomerate, which was rumoured to be close to acquiring a significant stake in the company. It was suggested that Baosteel might mount a raid on BHP stock, mimicking Chinalco, the aluminium giant that led an advance on Rio Tinto stock earlier this year, putting another hurdle in the way of a merger of the two mining giants.

The speculation was borne of reports in the Australian press and rescued BHP Billiton from the red. The rumours, which appeared less than an hour before the market closed, took the company's share price up 77p, or 4.57 per cent, to 1,762p. Rio Tinto climbed 61p to 5,901p.

Overall, the FTSE 100 sunk back below the 6,000 mark to 5,990.2 – down 24.6 points, or 0.4 per cent. Investor sentiment was dealt a blow after the Halifax said UK house prices fell by 2.5 per cent in March, the sharpest decline since September 1992. The report reignited fears of a prolonged, worse-than-expected, economic slowdown in the UK. The FTSE 250 shed 135.8, or 1.3 per cent, to 10,108.7.

Housebuilders were among the casualties of the slump in sentiment. Persimmon sunk 19p to 687p on the FTSE 100, while Taylor Wimpey shed 7.5p to 170p on the FTSE 250. Other decliners in the sector included Barratt Developments, which lost 17.5p to 377p, Bovis Homes, down 21p at 563.5p, Bellway, which was 23p weaker at 817p, and Redrow, off 7.25p to 300p.

Fears for the economy also besieged the banking sector. HBOS lost 10.5p to 549.5p, while Lloyds TSB fell 4.5p to 457p. Royal Bank of Scotland shed 1.75p to 374.25p, and Standard Chartered lost 7p to 1,798p.

Elsewhere in the FTSE 100, Kazakhmys told ENRC to either "put up or shut up". Following weeks of speculation suggesting ENRC would soon make a takeover approach, Kazakhmys applied to the UK Takeover Panel, asking it to set a deadline by which the rival miner must either make a formal bid or walk away from the idea of acquiring its peer for six months. Kazakhmys also confirmed so far it has not received any proposal from ENRC.

The move triggered talk about the next step – would ENRC bite the bullet and bid for Kazakhmys? Or would it remain reticent?

"Whilst a ruling from the panel technically puts some pressure on ENRC to act, it is a touch academic," Liberum Capital said. "We note that 'put-up-or-shut-up' provisions mean that if no bid is made by the date assigned by the panel, the potential bidder is not allowed to make a bid for six [months] unless it is on an agreed basis.

"Given KAZ's shareholder structure, any successful bid would have to be agreed by key members of the management in any case," the broker commented.

On the FTSE 250, more bid talk was evident around Expro International, the oil services company. The company confirmed it had received an offer approach from an unnamed party in February and has since declined to identify the suitor.

Fresh speculation on Monday suggested Expro was about to receive a second approach – an unidentified peer was mooted as the likely counter-bidder.

But last night – after the rival bid failed to materialise – focus reverted to the old approach. Candover Partners, the private equity firm widely suspected to be the source of the proposal, initiated the sale of its stake in another oil services company yesterday, sparking talk that it was raising funds in preparation for a formal 1,350p-per-share bid for Expro. Candover refused to comment on the matter and Expro stock rose by 14p to 1,213p.

The recruitment specialist Michael Page fell 8.25p to 280.5p after UBS downgraded the stock to "sell" from "neutral". The broker also lowered its target price for the stock, to 260p from 295p, citing the recent disappointing trading update.

Sector peer Hays was also hurt. While maintaining its 12-month "neutral" rating, UBS removed its "short-term buy" recommendation for the stock. Hays fell 5.25p to 106.5p.

On AIM, Ideal Shopping Direct slumped 28.5p to 208p. The stock was depressed after the television retailer said it was no longer in offer talks following a preliminary approach in February. "The interested party has not made a proposal at a level that the board of IDS believes would be acceptable to IDS shareholders," the company said.

Clean Diesel Technologies rose by 12.5p to 662.5p as Charles Stanley initiated coverage on the stock with a "buy" rating. "Clean Diesel holds key patents on enabling technologies which are required to meet stringent diesel emissions standards," the broker said. "The outlook is for strong revenue growth as vehicles incorporating the company's IP enter the market."